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WTO lowers trade forecast as tensions unsettle globe

08
Oct '19
Pic: Shutterstock
Pic: Shutterstock
Escalating trade tensions and a slowing global economy have led economists at the World Trade organisation (WTO) to sharply downgrade their forecasts for trade growth in 2019 and 2020. World merchandise trade volumes are now expected to rise by only 1.2 per cent in 2019, substantially slower than the 2.6 per cent growth forecast in April.

The projected increase in 2020 is now 2.7 per cent, down from 3.0 per cent earlier.

The economists caution that downside risks remain high and that the 2020 projection depends on a return to more normal trade relations, according to a WTO press release.

“The darkening outlook for trade is discouraging but not unexpected. Beyond their direct effects, trade conflicts heighten uncertainty, which is leading some businesses to delay the productivity enhancing investments that are essential to raising living standards," said WTO director general Roberto Azevêdo.

"Job creation may also be hampered as firms employ fewer workers to produce goods and services for export. Resolving trade disagreements would allow WTO members to avoid such costs," he added.

The updated trade forecast is based on consensus estimates of world gross domestic growth (GDP) growth of 2.3 per cent at market exchange rates for both 2019 and 2020, down from 2.6 per cent previously.

Slowing economic growth is partly due to rising trade tensions but also reflects country-specific cyclical and structural factors, including the shifting monetary policy stance in developed economies and Brexit-related uncertainty in the European Union.

Macroeconomic risks are firmly tilted to the downside. Due to the high degree of uncertainty associated with trade forecasts under current conditions, the estimated growth rate for world trade in 2019 is placed within a range of 0.5 per cent to 1.6 per cent.

Trade growth could fall below this range if trade tensions continue to build, or outperform it if they start to recede. The range of likely values is wider for 2020, ranging from 1.7 per cent to 3.7 per cent, with better outcomes depending on an easing of trade tensions. Risks to the forecast are heavily weighted to the downside and dominated by trade policy.

Further rounds of tariffs and retaliation could produce a destructive cycle of recrimination. Shifting monetary and fiscal policies could destabilise volatile financial markets. A sharper slowing of the global economy could produce an even bigger downturn in trade.

Finally, a disorderly Brexit could have a significant regional impact, mostly confined to Europe.

Fibre2Fashion News Desk (DS)


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